HOME / Data, Drones and Driverless Cars: Will new technology create or destroy growth for telcos?

Data, Drones and Driverless Cars: Will new technology create or destroy growth for telcos?

Around the world, there is much focus on convergence and disruption. The media touts innovations such as drones, driverless cars, and 3D printable pizza as if the Internet of Things (IoT) will revolutionise the world. It would seem that old industries and companies don’t have a chance when faced with competition from new players that get a lot of media attention. Indeed, of the top 20 telecom media and technology companies by market cap in 2005, only 9 remain today. When it comes to telecommunications, 11 of the 20 companies came from the telecommunications industry, but just 7 do today. Technological change creates large value for some players while eroding it for others very quickly.

What drives development in the telecommunications world?

In a rapidly changing world where survival is at stake, it is a challenge to create value for customers and shareholders. Even though network-based connectivity is a common feature of the IoT, this does not mean that traditional telecom operators which build and run networks will see more revenue. Some will win and some will lose.

For the last 20 years, Strand Consult has examined how technological development, new business models, and distribution channels have changed the telecommunications world. Our reports describe the paradigm shift for the classic telecom operator which sold voice and SMS to one that sells broadband combined with new services. Over the last 20 years, this development has increased the value of the market and the size of the industry. Despite this, the telecommunications industry is under a lot of pressure. Yet, there are still countries and product areas with large growth potential.

In the past the value of the market was derived from services such as voice and SMS/messaging, and access to infrastructure. Operators were able to price services in a way that they covered long term network investment costs plus a healthy profit. But the Internet changed that. Now operators deliver third party providers’ services. People have switched to free communication services such as Skype and WhatsApp, and no longer buy voice or SMS subscriptions. In addition, the popularity of real time entertainment services like YouTube and Netflix has exploded, taking up more than half of all network capacity but contributing little to the cost of infrastructure.

On top of that, European regulators created a series of open access policies requiring that operators sell access to their networks at regulated prices. Operators cannot price or manage their networks with the same profitability as before. This double-whammy of technological change and regulation has reduced the incentives for investment in infrastructure. Since the dawn the Internet, only the media industry has been more disrupted than telecommunications, as online advertising on platforms such as Google and Facebook now exceeds that of radio, television, and print.

In the classic innovator’s dilemma, those operators with the least adaptability to change have been the hardest hit while those that have evolved their business have reaped the greatest financial rewards. For example, when small VoIP providers emerged, the Norwegian Telenor quickly moved to bundle unlimited talk with its broadband products, helping to stem the decline in voice revenue. In Denmark, operators bundled unlimited SMS into their subscriptions; this made free WhatsApp look less appealing. In the US, operators offered long distance and local calls for the same price to keep subscribers from defecting to substitutes.

The future service provider must be innovative and work with flexible partners.

European telecom operators face significant financial and regulatory challenges. It is not enough to launch new services. Operators must continually offer their customer a wide range of innovative and compelling services. However, it is risky and expensive for operators to design every service themselves. As our international research shows, the better strategy is to find partners that will create traffic on the network and then offer flexible business models. Not only can partnerships stimulate innovation, they add value to connected products and services, which are otherwise commodities. Such innovation offers potential for added value for traditional products such as voice.

I believe that only operators which respond quickly to the new disruptive reality will succeed. Operators need the right partner, a suite of innovative services, and flexible business models in order to deliver value to customers and shareholders. It is more important for operators to focus on finding the right partner rather than creating new services from scratch. A good partner will bring ideas and complementary assets to the operator’s value proposition of a network and customer base. Simply put, the telecom service provider of the future needs to find the right partners and build flexible partnerships.

John Strand will discuss the disruption of the telecoms industry at Tata Communications’ upcoming European Partner Summit.

How do you see traditional telecoms companies adapting to new technologies? Let us know in the comments below.

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John Strand

John Strand

John Strand is a true mobile industry veteran. John has over 20 years of experience in advising major telecoms players around the world. Over his career he’s spotted many of the newest trends like premium SMS, MVNOs, web based distribution, new types of value added services and mobile broadband long before others. John focuses on helping his clients fully understand and profit from such trends. Being honest and giving his candid opinion on current issues in the telecom industry has become John's trademark.
1 comment
  1. imelda

    #thepowerofpartnerships